IC302-Financial Engineering

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:6
Terms in which taught: Autumn term module
Pre-requisites: IC202 Financial Modelling/Trading Simulation II/CMS or IC206 Financial Modelling/CMS
Non-modular pre-requisites:
Co-requisites: IC301 Derivative Securities/Trading Simulation III
Modules excluded:
Module version for: 2017/8

Module Convenor: Dr Miriam Marra

Email: m.marra@icmacentre.ac.uk

Summary module description:

This module is positioned in the cross-section of Finance and Psychology. It provides an alternative framework to that of traditional neo-classical finance principles in explaining market behaviour and interpreting stylised characteristics. A variety of psychological principles and well-established cognitive biases are examined and connections are made with the influence they have on the investment (and corporate) decision making process. Market anomalies and puzzles are interpreted based on these connections.


Aims:
This module is designed to combine theoretical and practical approaches to financial engineering of derivatives. It builds on concepts introduced in the module Derivatives Securities. The focus of this module is on modelling fixed income derivatives, credit derivatives and exotic options.

Assessable learning outcomes:
By the end of the module, students will be able to: i) Describe the most popular fixed income, credit derivatives, and exotic options; ii) Identify, compare and apply the related modelling and pricing methods for derivatives; iii) Outline and illustrate the main concepts of Financial Engineering; iv) Build simple Excel spreadsheets for pricing of derivatives.

Additional outcomes:

Outline content:
1. Introduction to Financial Engineering;
2. Interest rate derivatives modelling;
3. Swaps;
4. Credit default swaps and other credit derivatives;
5. Basic numerical procedures for valuing options;
6. Interest rate options;
7. Exotic options;
8. Structured products.

Brief description of teaching and learning methods:
There is a combination of lectures on the different types of derivatives, pricing methods related to these and on the engineering of these products. The seminar problems provide an experimental learning and hands-on pricing exercises. During the seminars, students are guided through the solutions to exercises. Students are made aware of information available on the internet about derivatives in different markets.

Contact hours:
  Autumn Spring Summer
Lectures 20
Seminars 7
Guided independent study 173
       
Total hours by term 200.00
       
Total hours for module 200.00

Summative Assessment Methods:
Method Percentage
Written exam 80
Class test administered by School 20

Other information on summative assessment:
One 1.50 hours unseen written paper (answer all questions)

Formative assessment methods:

Penalties for late submission:
The Module Convenor will apply the following penalties for work submitted late, in accordance with the University policy.

  • where the piece of work is submitted up to one calendar week after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for the piece of work will be deducted from the mark for each working day (or part thereof) following the deadline up to a total of five working days;
  • where the piece of work is submitted more than five working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.

  • The University policy statement on penalties for late submission can be found at: http://www.reading.ac.uk/web/FILES/qualitysupport/penaltiesforlatesubmission.pdf
    You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.

    Length of examination:
    1.5 hours

    Requirements for a pass:
    A minimum mark of 40%.

    Reassessment arrangements:
    Re-examination for Finals takes place in the Summer term

    Additional Costs (specified where applicable):
    1) Required text books: Options, Futures, and Other Derivatives, 9/E, John C Hull, ISBN-10: 0133456315
    2) Specialist equipment or materials:
    3) Specialist clothing, footwear or headgear:
    4) Printing and binding:
    5) Computers and devices with a particular specification:
    6) Travel, accommodation and subsistence:

    Last updated: 31 March 2017

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